Gold hits new record high against dollar

I am City A.M's deputy editor, having joined the newsroom in late 2010 as an economics reporter.

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Julian Harris

GOLD soared to a fresh record high in New York yesterday, explained widely by spiralling inflation and tumbling confidence in the US dollar.

Silver also spiked, to a 31-year high, with investors turning to both metals as “safe havens” amid economic uncertainty and historically accommodative monetary policy.

“The record price of gold is only coming through against the US dollar, and remains quite a way off in sterling and euro terms,” said Adrian Ash of Bullion Vault, a gold trading service.

Gold surged past $1,463 (£897) an ounce before closing at $1,461.50, having rallied by more than eight per cent over the last two months. Gold futures also rose by half a per cent, while silver hit a peak of $39.68 an ounce during the day.

“The Fed has printed billions, its monetary policy is unsustainable,” commented Michael Hewson of CMC Markets. “And if the US can’t even agree a Budget or a debt ceiling, what confidence does that give the dollar as a reserve currency?”

“People are losing faith in the ability of their governments to keep inflation under control and maintain the purchasing power of their currencies,” added Tom Clougherty of the Adam Smith Institute.

On Tuesday the Fed appeared to confirm that its controversial programme of asset-buying, coined QE2, will not be curtailed.

While still dovish in its sentiment, the minutes of the Fed’s last meeting admitted that the size of the ongoing quantitative easing could pose an upward risk to inflation expectations.

Instability in the Middle East and rising food, oil and other commodity prices were also cited as potential factors behind the strength in gold and silver – as well as seasonal peaks, caused by demand in India.

India is the world’s leading consumer of gold, spending 2.65 per cent of its GDP on the metal.